Section 9A of Inland Revenue
Ordinance is to combat avoidance arrangements involving the use of
service companies to disguise what are in substance
master-and-servant employment relationships. It provides that if a
“relevant person” pays remuneration for services rendered by a
“relevant individual” to a limited company controlled by that individual,
the remuneration is deemed to be employment income and assessed as
such on that individual.

The use of service companies is
to take advantage of the less stringent
expenses deduction under Profits Tax vis-à-vis that under Salaries
Tax. Under profits tax, in general expenses are deductible to the
extent they are incurred in the production of profits. But under
salaries tax, expenses are generally not deductible unless they
satisfy the stringent conditions of Section 12(1)(a): they are not
of a domestic, private or capital nature, and they are wholly,
exclusively and necessarily incurred in the production of assessable
income.

Section 9A applies if the following conditions exists:
(a) The relevant person carries on a trade, a profession or a
business, or a prescribed activity;
(b) The relevant person enters into an agreement with the relevant
individual for the services carried out by the relevant individual.
The agreement may be in writing or implied; and
(c) Under the agreement, remuneration for such services is paid to a
“service company” which is under the control of the relevant
individual.

A prescribed activity under (a) is one prescribed in the Gazette by
the Revenue under Section 9A(6). So far, the has been no such
prescribed activity.